Which insurance principle aims to prevent the insured from profiting from a loss?

The principle that aims to prevent the insured from profiting from a loss is the indemnity principle. This principle is foundational in insurance, ensuring that a policyholder is compensated for their loss but does not receive more than the actual loss incurred. The objective is to restore the insured to the financial position they were in before the loss occurred, rather than allowing them to gain financially from the insurance payout.

This means that if an insured suffers a loss, they will be reimbursed for the value of the loss, rather than being allowed to profit from it through excessive compensation. This helps maintain fairness in the insurance system and discourages fraudulent claims, where individuals might exaggerate or fabricate losses for personal gain.

In contrast, the other options represent different concepts in insurance. The underwriting principle relates to the process of evaluating risks and determining the terms and pricing of insurance coverage. The risk avoidance principle involves strategies taken to eliminate exposure to risk, and the subrogation principle allows an insurer to pursue recovery from third parties responsible for a loss after compensating the insured. Each of these concepts plays a role in the broader framework of insurance principles, but only the indemnity principle specifically addresses the issue of preventing profit from a loss.